Quick Facts

Russia’s economic freedom score is 52.1, making its economy the 143rd freest in the 2015 Index. Its score has improved by 0.2 point since last year, with gains in business freedom, freedom from corruption, and labor freedom largely offset by declines in monetary freedom, property rights, and the management of government spending. Russia is ranked 41st out of 43 countries in the Europe region, and its overall score is below the world average.

Despite increased political and economic isolation and falling gas prices, Russia’s economic freedom score has increased by 1.6 points since 2011, with gains in half of the 10 economic freedoms led by a particularly notable improvement in business freedom. Significant declines in financial freedom and property rights have held back overall progress.

The foundations of economic freedom in Russia remain weak. Apart from connections with Europe, Russia remains relatively closed to trade and investment. The government screens foreign investment, and subsidized state-owned businesses limit competition and market opportunities. Corruption and respect for property rights have improved little since the fall of Communism. The business environment is constrained by suffocating bureaucracy and a rigid labor market.

Background

Former President and Prime Minister Vladimir Putin was re-elected president in March 2012 on the heels of hotly disputed December 2011 Duma elections. Under Putin’s leadership, Russia illegally annexed Ukraine’s Autonomous Republic of Crimea early in 2014. Moscow’s support of Russian separatists in Ukraine has led to capital outflows and targeted sanctions by the United States and European Union. Russia’s Gazprom cut gas supplies to Ukraine after violence between Ukrainians and Russian separatists increased in the eastern region of the country. The Russian economy remains heavily dependent on gas exports. Russia became a member of the World Trade Organization in August 2012, but its bid to join the Organisation for Economic Co-operation and Development has been postponed due to its recent actions in Ukraine.

Corruption is rampant. Small elites control most of the nation’s assets, and state institutions have been corroded. Anti-corruption campaigns are used to ensure elite loyalty and undermine political opponents. The rule of law is not uniform across the country, and the judiciary is vulnerable to political pressure and inconsistent in applying the law. Protection of private property rights is weak.

Russia’s top individual income tax rate is 13 percent, and its top corporate tax rate is 20 percent. Other taxes include a value-added tax and an environmental tax. The overall tax burden equals 28.7 percent of domestic income. Government expenditures amount to 37.5 percent of domestic production, and public debt is equal to 13 percent of gross domestic product.

Bureaucratic obstacles and inconsistent enforcement of regulations continue to suppress the private sector. Although forming a business can take less than four procedures on average, completing licensing requirements still takes over 200 days. The outmoded labor code limits employment growth. The government uses extensive subsidies, state-owned companies, export taxes on petroleum products, and other means to influence prices.

Russia’s average tariff rate is 5.0 percent. Informal barriers further interfere with trade. The government can discriminate against foreign investment, and investment in several sectors of the economy is restricted. The financial sector remains subject to considerable state interference. The government retains some ownership in the banking sector, and the central bank has become a single financial market regulator.